Alberta cuts oil production in face of price differential

‘Every Albertan owns the energy resources in the ground and we have a duty to defend those resources,’ says Premier Notley

Alberta Premier Rachel Notley announced on Sunday that the province is mandating a short-term reduction in oil production in response to the historically high oil price differential.

The provincial government says that differential is costing the national economy more than $80 million a day.

Production of raw crude oil and bitumen will be reduced by 325,000 barrels per day to address the storage glut, representing an 8.7 per cent reduction. After excess storage is drawn down, the reduction will drop to an estimated average of 95,000 barrels a day until Dec. 31, 2019, when the rules supporting this action end, according to the provincial government.

“Every Albertan owns the energy resources in the ground and we have a duty to defend those resources. But right now, they’re being sold for pennies on the dollar. We must act immediately, and we must do it together. I can’t promise the coming weeks and months will be easy, but I can promise we will never back down in our fight to protect jobs and the resources owned by all Albertans. I will never stop fighting for Alberta,” said Notley.

In making the announcement, the province said the price gap is caused by the federal government’s decades-long inability to build pipelines.

“Ottawa’s failure in this area has left Alberta’s energy producers with few options to move their products, resulting in serious risks for the energy industry and Alberta jobs,” it said.

“Alberta is currently producing 190,000 raw crude oil and bitumen barrels per day more than can be shipped by pipelines, rail or other means. The amount of oil that is being diverted to storage is at record highs and storage is nearing capacity.”

The government said its action is projected to reduce volatility, narrow the differential by at least $4 per barrel relative to where it otherwise would have been and add an estimated $1.1 billion of government revenue in 2019-20.

The reductions will start in January 2019 and the initiative will be implemented by the Alberta Energy Regulator.

The government said 35 million barrels of oil are in storage – about twice the normal levels. The price differential for Western Canadian Select (WCS) versus West Texas Intermediate (WTI) has been around US$30 to US$50 recently, peaking at US$52 in October.